Texas Corporate Law Changes: What Businesses Need To Know

Texas has positioned itself as a leading business jurisdiction through comprehensive corporate law reforms enacted in 2025. These changes make Texas an increasingly attractive jurisdiction to reincorporate. Understanding these modifications is essential for in-house counsel evaluating Texas as their jurisdiction of choice.

Q: What Is the New Texas Business Judgment Rule Statute?

A: Senate Bill 29, already in effect, codifies the business judgment rule in new Section 21.419 of the Texas Business Organizations Code, creating significant advantages for companies domiciled in the state. This statute creates a legal presumption that directors and officers acted in good faith, on an informed basis, in the corporation's best interests, and in compliance with law and governing documents.

• Key Protections: Directors and officers receive the benefit of presumed good faith in their decision-making processes, with courts required to assume they acted on an informed basis when making corporate decisions. The law further presumes that all board actions were taken in the corporation's best interests and in full compliance with applicable law and governing documents.
• Eligibility Requirements: The statute applies automatically to public corporations with voting shares listed on national securities exchanges, providing immediate benefits for Texas-based companies already trading publicly. Private corporations may access these same protections by including an affirmative election in their governing documents, creating flexibility for businesses.
• Litigation Impact: Shareholders face a significantly higher burden when challenging director or officer decisions. Successful litigation requires shareholders to rebut the statutory presumptions and prove that breaches involved fraud, intentional misconduct, ultra vires acts or knowing legal violations.

Q: What Is the Advance Independence Determination Process in Texas?

A: Senate Bill 29 empowers boards of public corporations and private corporations that have opted into the business judgment rule to form committees of independent directors for conflict-of-interest transactions. These committees can petition the Texas Business Court for advance determinations regarding director independence.

• Committee Formation Process: Boards of public corporations and opted-in private corporations may form committees composed entirely of independent directors to handle conflict-of-interest transactions. These committees operate with enhanced authority to evaluate transactions involving controlling shareholders, directors or officers, providing a structured approach to potential conflicts.
• Court Petition Requirements: These independent director committees may petition the Texas Business Court for advance determinations regarding director independence for specific transactions. The court's determination becomes dispositive unless new evidence emerges showing a director lacks independence for the particular transaction under review. This creates legal certainty that protects both the corporation and its directors.
• Legal Benefits: This mechanism allows corporations to resolve independence questions proactively rather than defending these determinations in subsequent litigation. The advance determination process reduces both legal risk and transaction costs, providing businesses with significant advantages over jurisdictions that lack similar procedures.

Q: What Ownership Thresholds Apply to Derivative Lawsuits in Texas?

A: Senate Bill 29 provides enhanced protection against frivolous shareholder litigation through carefully calibrated ownership requirements. These provisions help prevent nuisance litigation while preserving meaningful oversight rights for shareholders with substantial economic stakes.

• Minimum Ownership Requirements: Public corporations and qualifying private corporations domiciled in Texas with 500 or more shareholders may establish minimum ownership requirements for derivative lawsuit eligibility. Corporations may include provisions in their certificate of formation or bylaws requiring shareholders to own up to 3 percent of outstanding shares before filing derivative actions.
• Implementation Timeline: Corporations must have these provisions in their governing documents before derivative proceedings are instituted to benefit from the protection. This requirement encourages proactive governance planning and rewards companies that adopt comprehensive protective measures.
• Litigation Prevention Benefits: The 3 percent maximum threshold ensures the requirement remains reasonable and accessible while effectively preventing shareholders with minimal economic stakes from pursuing costly litigation. This balance preserves legitimate corporate oversight while reducing the burden of defending against weak or opportunistic claims.

Q: When Can Texas Corporations Limit Books and Records Demands?

A: Senate Bill 29 restricts books and records demands for public corporations and private corporations that have opted into the business judgment rule, providing additional protection for companies. These limitations prevent shareholders from using inspection rights as discovery tools while preserving legitimate oversight purposes.

• Denial Grounds: Corporations may deny books and records demands when they reasonably determine the request connects to active or pending derivative proceedings involving the requesting shareholder or expected adversarial civil litigation. This protection prevents shareholders from circumventing normal discovery procedures through inspection rights.
• Electronic Communications Exclusions: The legislation clarifies that emails, text messages, electronic communications and social media content are not subject to books and records demands unless the communication effectuates corporate action. This modernizes inspection rights for the digital age while protecting routine corporate communications from fishing expeditions.
• Litigation Prevention Strategy: These provisions create a balanced approach that protects corporations from abusive inspection requests while maintaining shareholders' legitimate oversight rights. Companies benefit from clearer boundaries around books and records access compared to less defined standards in other jurisdictions.

Q: How Does Texas Address Disclosure-Only Settlements?

A: Senate Bill 29 eliminates incentives for disclosure-only settlements that primarily benefit attorneys rather than shareholders. This reform addresses a persistent problem in shareholder litigation across multiple jurisdictions.

• Attorney Fee Recovery Changes: The amended law modifies attorney fee recovery provisions in derivative proceedings by specifically stating that additional or amended disclosures to shareholders, regardless of materiality, do not constitute a "substantial benefit" to the corporation. This eliminates the primary incentive for disclosure-only settlements that generate attorney fees without providing meaningful shareholder value.
• Litigation Outcome Improvements: The modification encourages substantive litigation outcomes while reducing frivolous lawsuits designed primarily to generate attorney fees through minimal disclosure enhancements. Attorneys must now demonstrate actual corporate benefit beyond mere additional disclosures to recover fees from corporations.
• Strategic Advantages: Texas-basedcompanies benefit from reduced settlement pressure in weak derivative claims, as plaintiffs' attorneys lose the primary economic incentive for filing disclosure-focused litigation. This creates a more predictable litigation environment that favors defendants with strong legal positions.

Q: What Jury Trial and Forum Selection Rights Do Texas Companies Have?

A: Senate Bill 29 codifies forum selection and jury trial waiver rights, providing predictable litigation frameworks for businesses. These provisions give entities greater control over dispute resolution procedures and reduce forum shopping by plaintiffs seeking favorable jurisdictions.

• Forum Selection Provisions: Texas entities may include exclusive forum selection clauses in their governing documents for internal entity claims, which include derivative actions and other matters arising from or relating to the entity's internal affairs. This allows entities to specify Texas courts as exclusive forums for internal entity disputes, providing predictable litigation venues.
• Jury Trial Waiver Benefits: The jury trial waiver applies to all internal entity claims, allowing more predictable resolution of complex corporate disputes through bench trials. This is particularly valuable for sophisticated corporate law matters that benefit from judicial expertise rather than jury deliberation.
• Strategic Litigation Control: These provisions provide enhanced control over where and how corporate disputes are resolved. The combination of forum selection and jury trial waiver creates a more predictable and efficient litigation environment compared to jurisdictions without similar protections.

Q: What Are the New Class and Series Voting Changes?

A: Senate Bill 29 eliminates mandatory separate class and series voting requirements that previously created barriers for corporations in Texas. This change addresses incompatibilities between rigid voting requirements and complex capital structures common in multi-class corporations.

• Voting Structure Flexibility: The amended law allows Texas corporations to design voting structures that better align with their business needs and investor expectations, rather than being constrained by inflexible statutory requirements. This flexibility is particularly valuable for technology companies and other entities with multiple share classes that provide different voting and economic rights to various stakeholder groups.
• Multi-Class Corporation Benefits: Previously, rigid voting requirements were often incompatible with sophisticated capital structures that separate economic rights from voting control. The new law accommodates these arrangements while maintaining appropriate shareholder protections through alternative governance mechanisms.
• Relocation Advantages: This reform removes a significant barrier that previously deterred complex corporate entities from choosing Texas as their jurisdiction. Companies with sophisticated capital structures can now pursue Texas relocation without being forced to restructure their existing voting arrangements to comply with inflexible statutory requirements.

Q: What Are the Shareholder Proposal Requirements in Texas?

A: Senate Bill 1057, already in effect, allows qualifying Texas corporations to adopt minimum ownership requirements for shareholder proposals, effective September 1, 2025. These requirements ensure that only shareholders with significant economic stakes and broad support can submit proposals, reducing frivolous or disruptive shareholder activism.

• Eligibility Requirements: Eligible corporations must have securities registered under the Securities Exchange Act and be listed on national exchanges. They must also either have their principal office in Texas or list on Texas-based exchanges, creating incentives for companies to establish meaningful Texas connections as part of their strategy to reincorporate in the state.
• Ownership Thresholds: Corporations that opt into these provisions require shareholders to hold at least $1 million in market value or three percent of outstanding voting shares for six months before and throughout shareholder meetings. In addition, shareholders must solicit holders of at least 67 percent of voting power entitled to vote on the proposal, demonstrating broad shareholder support.
• Shareholder Activism Protection: These requirements create meaningful barriers to frivolous proposals while preserving legitimate shareholder oversight rights. The combination of economic stake requirements and broad support thresholds ensures that only well-supported initiatives reach the proxy process, reducing costs and distractions for management and boards.

Q: How Are Proxy Advisory Services Regulated in Texas?

A: Senate Bill 2337, already in effect, imposes disclosure requirements on proxy advisory firms serving Texas public companies, effective September 1, 2025. This legislation provides companies with greater transparency regarding the basis for proxy advisor recommendations and creates enforcement mechanisms for violations.

• Covered Entity Requirements: The law applies to companies incorporated in Texas, with principal places of business in Texas, or proposing to redomicile in Texas. This broad coverage ensures that companies benefit from enhanced proxy advisor oversight regardless of their current jurisdiction.
• Disclosure Obligations: Proxy advisors must provide detailed disclosures when recommendations are based on nonfinancial factors, including environmental, social, governance (ESG), diversity, equity, inclusion (DEI), or sustainability considerations. They must also disclose when advice subordinates shareholder financial interests to other objectives, providing shareholders with clearer information about recommendation methodologies.
• Enforcement Mechanisms: Violations constitute deceptive trade practices under Texas law, with enforcement available to companies, shareholders, advisory clients, and the Texas Attorney General. This creates significant compliance obligations for major proxy advisory firms and provides multiple avenues for addressing violations.

Q: What Officer Exculpation Provisions Does Texas Law Offer?

A: Senate Bill 2411, already in effect, extends exculpation protections to officers equivalent to existing director protections. This reform addresses a competitive disadvantage that previously made Texas less attractive for sophisticated corporate entities.

• Protection Scope: Texas entities may eliminate or limit officer monetary liability for acts or omissions in their official capacity through certificate of formation amendments. This protection provides officers with liability shields similar to those available to directors under existing law, creating comprehensive protection for corporate leadership.
• Exclusions from Protection: Exculpation does not apply to breaches of loyalty duties, bad faith acts involving intentional misconduct or knowing legal violations, transactions providing improper benefits or acts with express statutory liability. These exclusions preserve accountability for the most serious forms of misconduct while protecting officers from liability for good faith business decisions.
• Competitive Advantages: This protection enhances Texas' competitiveness with Delaware and other jurisdictions that offer similar officer protections. Companies can now offer executives liability protection equivalent to what they would receive in other major corporate jurisdictions, removing a potential barrier to relocation.

Q: When Can Boards Amend Certificates of Formation Without Shareholder Approval in Texas?

A: Senate Bill 2411 expands circumstances allowing board amendments to certificates of formation without shareholder approval, reducing administrative burdens for Texas reincorporation and ongoing compliance. These provisions streamline routine corporate maintenance while preserving shareholder approval requirements for substantive changes.

• Administrative Amendment Authority: Boards may remove provisions specifying initial directors' or organizers' names and addresses, which are required in initial certificates but become obsolete after formation. This eliminates the need for shareholder approval to update routine administrative information that serves no ongoing purpose.
• Stock Split Authorization: For single-class corporations without series, boards may effect stock splits or reverse stock splits without shareholder approval if the reverse split's primary purpose is maintaining national exchange listing eligibility. This provides flexibility for corporations to maintain compliance with exchange requirements without the delay and expense of shareholder meetings.
• Operational Benefits: These provisions reduce administrative costs for routine corporate maintenance while preserving meaningful shareholder participation in substantive governance decisions. Companies benefit from more efficient ongoing compliance procedures compared to jurisdictions with more restrictive amendment requirements.

Q: How Does New Texas Corporate Law Affect Merger and Acquisition Processes?

A: Senate Bill 2411 streamlines merger and acquisition processes through several mechanisms that reduce transaction complexity and provide greater certainty for deal participants. These improvements make Texasmore attractive for companies engaged in frequent M&A activity.

• Board Approval Flexibility: Boards may approve plans, agreements and documents in "substantially final" form rather than requiring final versions, providing greater negotiation flexibility during transaction processes. This reduces the need for multiple board meetings and allows for more efficient deal management while maintaining appropriate board oversight.
• Shareholder Representative Authority: The law expressly authorizes shareholder representatives to act on behalf of shareholders in mergers and interest exchanges, including enforcement and settlement authority. This delegation provides clearer legal authority for post-closing activities and reduces uncertainty about representative powers.
• Pre-Formation and Documentation Benefits: Pre-formation equity subscriptions become irrevocable if written, signed and explicitly state irrevocability, providing greater certainty for investors and companies in formation transactions. In addition, disclosure schedules and similar documents are not considered part of merger plans unless explicitly stated, reducing documentation complexity and potential liability exposure.